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Healthcare CostsHealthcare Costsin NH in NH
Presentation toPresentation to The COMMISSION TO INVESTIGATE COST DRIVERS IN The COMMISSION TO INVESTIGATE COST DRIVERS IN PROVIDING HEALTH CARE (HB 517, Chapter 297:1, PROVIDING HEALTH CARE (HB 517, Chapter 297:1,
Laws of 2007)Laws of 2007)
Our health system research undertaken with generous support from Steve Norton
Executive DirectorSeptember 12, 2007
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All of our reportsare available on the web:
www.nhpolicy.orgwww.nhpolicy.org
New Hampshire Center New Hampshire Center for Public Policy Studiesfor Public Policy Studies
Board of Directors
Martin L. Gross, ChairJohn B. AndrewsJohn D. CrosierGary Matteson Todd I. Selig Donna SytekGeorgie A. ThomasJames E. Tibbetts Brian WalshKimon S. Zachos
Executive DirectorStephen Norton
Executive Director, Emeritus Doug Hall
“…to raise new ideas and improve policy debates through quality information and analysis on issues shaping New Hampshire’s future.”
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Topics
• Trends in the Cost of Health Care• Health Care Expenditure Drivers• Cost Shifting• The Insurance Market• Health Care and the Economy
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Trends in the Cost of Health Care
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NHCPPS Health Care Finance ProjectConceptual Flow Chart of Funds in New Hampshire Health Care System
Ultimate Fundors: Level 1
Fundors: Level 2
Intermediaries: Level 3Payments to ProvidersAdministrationProfits
Providers: Level 4
Provider cost structures: Level 5Salaries and w ages $ ? $ ? $ ? $ ? $ ? $ ? $ ?
$ ? $ ? $ ? $ ? $ ? $ ? $ ?
In-state $ ? $ ? $ ? $ ? $ ? $ ? $ ?
Fringe benefitsOut-of-state $ ? $ ? $ ? $ ? $ ? $ ? $ ?
Consumable non-medical supplies $ ? $ ? $ ? $ ? $ ? $ ? $ ?
Consumable medical supplies $ ? $ ? $ ? $ ? $ ? $ ? $ ?
Cost of Capital (debt service) $ ? $ ? $ ? $ ? $ ? $ ? $ ?
Over-the-counter medications $ ? $ ? $ ? $ ? $ ? $ ? $ ?
Prescription medications $ ? $ ? $ ? $ ? $ ? $ ? $ ?
Malpractice insurance $ ? $ ? $ ? $ ? $ ? $ ? $ ?
Other insurance $ ? $ ? $ ? $ ? $ ? $ ? $ ?
Utilities $ ? $ ? $ ? $ ? $ ? $ ? $ ?
Office equipment $ ? $ ? $ ? $ ? $ ? $ ? $ ?
Clinical equipment $ ? $ ? $ ? $ ? $ ? $ ? $ ?
Profits $ ? $ ? $ ? $ ? $ ? $ ? $ ?
Etc…… $ ? $ ? $ ? $ ? $ ? $ ? $ ?
Etc…….
Changes in these lines constitute reimbursement control, not "cost control."
This is the only point at w hich real "cost control" can take place.
Nursing Homes(A)
Private Practioners(B)
Pharmacies(C)
Hospitals(D)
Independent Laboratories
(E)
CommunityHealth Centers
(F)
Commercial Health Insurers
(D)
Other Public Programs
(C)
State Medicaid Program
(B)
Medicare(A)
Investment Portfolios(E)
Private Sector Employers (D)
State Treasury(C)
Federal Treasury(B)
County Treasury(A)
Individuals(C)
Business Owners & Employees
(B)
Individual and Business Taxpayers
(A)
The Healthcare Finance System
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% of All Health Care Paid by Sources, 1965-2014
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
55%
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
Year
Public Funding
Out-of-Pocket
Insurance
Other Private Sources
Source: National Health Expenditure Accounts, Centers for Medicare and Mericaid Services
projected
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Estimated Source of Funds Personal Health Care in US, 2006
Other Public8%
Medicaid16%
Other Private4%
Medicare22%
Insurance36%
Out-of-Pocket14%
Public Sources
46%
Private Sources
54%
Note: Some of the spending that is categorized as private insurance actually originates from public funds: insurance for teachers, postal employees, and other government workers.
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NH Health Expenditure as % of Gross State Product (GSP)
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Year
Projected
Source: Calculations by Douglas E. Hall, NH Center for Public Policy Studies, based on national projections made by Office of the Actuary, Center for Medicare and Medicaid Services, Washington DC.
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Average Annual Health Insurance Premium
New Hampshire US
2000 2004Annual increase 2000 2004
Annual increase
1-Person coverage $2,790 $4,084 10.0% $2,655 $3,705 8.7%
Family coverage $7,525 $11,156 10.3% $6,772 $10,006 10.3%
2-person coverage[1] n/a $8,495 - n/a $7,056 -
[1] MEPS did not begin to collect premium information for 2-person coverage nationally until 2001 and for New Hampshire until 2002.
Sources: Agency for Healthcare Research and Quality, Center for Financing, Access and Cost Trends. 2004 Medical Expenditure Panel Survey (MEPS) -Insurance Component.
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Average Annual Employee Contribution to Health Insurance
New Hampshire US
2000 2004
Annual increase 2000 2004
Annual increase
Single coverage $470 $944 19.1% $450 $671 10.5%
Family coverage $1,752 $3,102 15.4% $1,614 $2,438 10.8%
2-person coverage n/a $2,010 - n/a $1,667 -
Sources: Agency for Healthcare Research and Quality, Center for Financing, Access and Cost Trends. 2004 Medical Expenditure Panel Survey (MEPS) -Insurance Component.
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Annual Health Insurance Premium for 1-Person Coverage as Percent of Per Capita Income
1998 1999 2000 2001 2002 2003 2004
1-Person Coverage Premium $2,356 $2,790 $3,263 $3,563 $4,084
Per Capita Income $24,583 $25,632 $27,129 $26,467 $27,407
% of Per Capita Income 11.4% 12.0% 13.5% 14.9%
Per Capita Income and Premium Costs
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• The short answer? Not certain. • Some studies suggest that investment in
health care have yielded significant benefits (in terms of life years).
• Others are less certain: • “Regions experiencing the largest spending gains
were not those realizing the greatest improvements in survival. Factors yielding the greatest benefits to health were not the factors that drove up costs.” Health Affairs 25 (2006)
• Hospitals and physicians are competing for profitable services, making costly investments in the latest medical technologies. These market forces are largely going unchallenged by insurers and regulators (Center for Health Systems Change, Issue Brief No. 97)
• Elliot Fisher’s Work suggest some services are ‘unnecessary.’
Are we getting value?
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Outpatient Knee Arthroscopy Procedures: Average Paid per Procedure By HSA: NH CHIS 2005 Incurred Claims - private payer claims
$7,468$5,798
$5,774
$5,649
$5,162
$4,924
$4,851
$4,788
$4,765
$4,737
$4,591
$4,538
$4,390
$4,289
$4,227
$4,131
$4,104
$4,030
$3,621
$3,619
$3,459
$3,084
$2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000
Littleton
Lancaster
Woodsville
Claremont
Berlin
Concord
Exeter
Portsmouth
Peterborough
Franklin
North Conway
Keene
Rochester
Dover
Colebrook
Wolfeboro
Laconia
Lebanon
Manchester
Derry
Plymouth
Nashua
NH average rate = $4,064
ME average rate = $4,614
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Health Care Expenditure Drivers
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Estimated Personal Health Care Spending in NH, 2006(in $ million)
$2,747
$2,359
$417
$335
$936
$110
$679
$170
$384
Hospital Care
Physicians, Clinics, & Other Professional
Services
Dental Services
Home Health Care
Prescription Drugs
Durable Equipment
Nursing Home Care
Other Personal Health Care Total:
$8,137 million
Other Non-durables
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NH Personal Health Care Spending, 1990-2005
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,00019
90
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Year
Exp
end
itu
re (
$ m
illi
on
s)
Hospital CarePhysician ServicesOther Professional ServicesDental ServicesHome Health CarePrescription DrugsOther Non-Durable Medical ProductsDurable Medical ProductsNursing Home CareOther Personal Health Care
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Most costs are for those over 40.
Distribution of Total Private Insurance Payments by Age <= 65CHIS Data, NH Residents Only, 2005
$0
$10,000,000
$20,000,000
$30,000,000
$40,000,000
$50,000,000
$60,000,000
1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64
Age
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Age Distribution: 1970
Distribution of NH Population by Age in 1970
(60,000) (40,000) (20,000) - 20,000 40,000 60,000
0-4
5-9
10-14
15-19
20-24
25-29
30-34
35-39
40-44
45-49
50-54
55-59
60-64
65-69
70-74
75-79
80-84
85+
Persons
(60,000) (40,000) (20,000) - 20,000 40,000 60,000
Males Females
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Age Distribution: 1995
Distribution of NH Population by Age in 1995
(60,000) (40,000) (20,000) - 20,000 40,000 60,000
0-4
5-9
10-14
15-19
20-24
25-29
30-34
35-39
40-44
45-49
50-54
55-59
60-64
65-69
70-74
75-79
80-84
85+
Persons
(60,000) (40,000) (20,000) - 20,000 40,000 60,000
Males Females
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Age Distribution: 2020?
Distribution of NH Population by Age in 2020
(60,000) (40,000) (20,000) - 20,000 40,000 60,000
0-4
5-9
10-14
15-19
20-24
25-29
30-34
35-39
40-44
45-49
50-54
55-59
60-64
65-69
70-74
75-79
80-84
85+
Persons
(60,000) (40,000) (20,000) - 20,000 40,000 60,000
Males Females
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Why are people receiving services?
CCS Disease Category Total Payments Total ServicesSpondylosis intervertebral disc disorders other back problems $73,561,668 811,441 Medical examination and evaluation $41,418,052 889,474 Coronary atherosclerosis and other heart disease $40,745,832 144,075 Other connective tissue disease $39,905,691 505,419 Other screening for suspected conditions not mental disorders or infectious disease $36,233,235 486,031 Non specific chest pain $33,280,102 288,193 Osteoarthritis $31,401,029 122,805 Other and unspecified benign neoplasm $30,314,791 146,150 Cancer of breast $28,411,543 131,173 Abdominal pain $27,845,684 276,472
Distribution of Total Expenditures by Disease Category (CCS)New Hampshire Residents, CHIS Data, 2005
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Cost-Shifting
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Revenue Structure of a Health Care Provider
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
110%
120%
130%
140%
150%
160%
170%
% of Gross Charges by Payer
% o
f C
ost
Pai
d
Insurance45%
Self-Pay7%
Medicare41%
Medicaid7%
0% 100%
If all payers pay 100% of COST, then the provider will break even.(If all pay 104% of cost, the provider will have a 4% operating margin)
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Revenue Structure of a Health Care Provider
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
110%
120%
130%
140%
150%
160%
170%
% of Gross Charges by Payer
% o
f C
ost
Pa
id
Insurance45%
Self-Pay7%
Medicare41%
Medicaid7%
0% 100%
Revenue above 100%
Shortfalls
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Revenue Structure of a Health Care Provider
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
110%
120%
130%
140%
150%
160%
170%
% of Gross Charges by Payer
% o
f C
ost
Pa
id
Insurance43%
Self-Pay8%
Medicare41%
Medicaid8%
0% 100%
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Hospital Cost-Shifting in 2005(Aggregate of 26 NH Acute Care Hospitals)
0%
50%
100%
150%
200%
250%
Percent of Gross Charges
Pay
men
t as
Per
cen
t o
f C
ost
3rd Party Payers (insurance) Medicare
Medicaid
bad debt & charity
Total amount cost-shifted: $345 million Net operating gain: $160 millionOperating margin: 5.8%
other
216%
+ $461 million
$157 million $ 63m. $124 m
illion
+ $35m.
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Hospital OwnershipCritical Access Designation?
Operating Margin After Tax
Parkland Medical For Profit 11.9%Portsmouth Regional For Profit 10.4%Exeter Not-For-Profit 10.3%So. NH Regional Not-For-Profit 10.0%Elliot Not-For-Profit 8.8%Memorial Not-For-Profit Yes 8.7%Catholic Med Ctr Not-For-Profit 7.3%Wentworth-Douglass Not-For-Profit 7.0%Littleton Not-For-Profit Yes 6.8%Frisbie Memorial Not-For-Profit 6.6%Lakes Region Not-For-Profit 5.8%St. Joseph Not-For-Profit 5.4%Concord Not-For-Profit 3.9%Cheshire Not-For-Profit 3.3%Upper Conn Valley Not-For-Profit Yes 3.3%Mary Hitchcock Not-For-Profit 3.2%Speare Memorial Not-For-Profit Yes 3.2%Androscoggin Not-For-Profit Yes 2.7%Valley Regional Not-For-Profit Yes 1.7%Weeks Memorial Not-For-Profit Yes 1.4%Huggins Not-For-Profit Yes 1.0%New London Not-For-Profit Yes 0.5%Franklin Regional Not-For-Profit Yes 0.3%Monadnock Not-For-Profit Yes 0.3%Cottage Not-For-Profit Yes 0.2%Alice Peck Day Not-For-Profit Yes -2.1%
NH Post-Tax Operating Margins (2005)
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New Hampshire Hospitals' Cost-Shift and Set-Aside for Margins2001 and 2005
$178,944,592
$344,853,233$48,498,241
$160,225,534
$0
$100,000,000
$200,000,000
$300,000,000
$400,000,000
$500,000,000
$600,000,000
2001 2005
Amount Set Aside for Margins
Amount Cost Shifted to Meet Costs
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Insurance Premium to Pay for Hospital Service (2004 and 2005)
2004 2005
Hospital Total Hospital Total
Hospital Charge $10,000 $10,000
Actual Cost of Service $4,854 $4,640
Cost-shift surcharge $1,284 $1,576
For operating margin $561 $866
Claim to be paid $6,699 $7,082
Claim to pay $6,699 $7,082
Insurer admin/profit (17.6%) $1,179 $1,246
Premium required $7,878 $8,328
Premium as % of cost of service 162% 179%
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Revenue Structure of a Health Care Provider
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
110%
120%
130%
140%
150%
160%
170%
% of Gross Charges by Payer
% o
f C
ost
Pai
d
Insurance43%
Self-Pay8%
Medicare41%
Medicaid8%
0% 100%
What happens as the population ages?What happens if the uninsured or underinsured population grows?
Demographics and Cost Shifting?
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Cost Shifting A Part of Cost Growth
• Hospitals’ financial stability, as measured by operating margins, has increased.
• Small rural hospitals have largely recovered (critical access designation)
• Cost shift has increased significantly, driven by both underpayment of public payers and increases in operating margins.
• Cost shift contributes to growth in health care costs borne by businesses and individuals through premium payments.
• This phenomenon not limited to hospitals, but data is not available for other providers.
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The Insurance Market
33
Market Share (Premiums) 2003-2006
$1,255,047,786 in Health Insurance Premiums in 2003
$286,250,036
$140,246
$250,855,362
$117,835,682
$599,966,460
Anthem
Cigna
Matthew Thornton
Aetna
HarvardPilgrim
$1,263,919,626 in Health Insurance Premiums in 2006
$430,811,229
$138,596,101
$242,296,689
$484,809,802
$8,245,825
Anthem
Cigna
Matthew Thornton
HarvardPilgrim
Patriot
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Use of Premiums by 5 NH Health Insurers, 2005
Medical/Hospital64%
Pharmacy12%
Other Professional Services
2%
ERs & Out of Area3%
Outside Referrals1%
General Administration7%
Net Underwriting Gain (Loss)
8%Claims Adjustment
3%82% of premiums paid for
claims while 18% was administration and profit
Total spending:$1,263,919,626
Based on annual financial reports filed with NH Department of Insurance
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Net Underwriting Profit (Loss) For 5 NH Insurers
$63,051,904
$29,214,515
$83,732,008
$96,796,649
$56,638,560
$36,029,896
$0
$20,000,000
$40,000,000
$60,000,000
$80,000,000
$100,000,000
$120,000,000
2001 2002 2003 2004 2005 2006
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Underwriting Profit (Loss) for Major NH Carriers as a % of Premiums 2001-2006
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
2001 2002 2003 2004 2005 2006
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2006 Net Underwriting Profit (Loss)
$32,076,297
$62,431,535
-$7,496,736
-$938,436-$2,340,652
-$20,000,000
-$10,000,000
$0
$10,000,000
$20,000,000
$30,000,000
$40,000,000
$50,000,000
$60,000,000
$70,000,000
Anthem Mathew Thorton Cigna Patriot Harvard Pilgrim
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2006 Net Underwriting Profit (Loss) as a % of Premium
7.3%
12.9%
-5.4%
-28.4%
-0.4%
-40.0%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
Anthem MathewThorton
Cigna Patriot Harvard Pilgrim
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Cost Summary
• Costs increases are about average; however, businesses and individuals face an increasing burden.
• Sectors contributing to growth: hospital (#1), physician (#2) and prescription drug (#3).
• Technology clearly plays an important role.
• Question for New Hampshire?• Average per-capita health costs remain
lower than the national average. • Premiums remain higher than the
national average …. Why?
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Health Care and the Economy
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Grand Total Approved CON Applications~ $63 million per year
$0
$50,000,000
$100,000,000
$150,000,000
$200,000,000
$250,000,000
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
~ $700 Million
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Total Non-Farm Employment in New Hampshire (1990-2005)
0
100
200
300
400
500
600
700
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Th
ous
and
s
1.3% Per Year
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Job Growth in Healthcare in New Hampshire
0
10
20
30
40
50
60
70
80
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Tho
usan
ds
3.0% Per Year
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Change in Job Growth Relative to Population Growth (2000-2005)
0.00
0.20
0.40
0.60
0.80
1.00
1.20
2000 2001 2002 2003 2004 2005
All JobsHealthcare
If jobsgrew at thesame rate as population, the lines would overlap at 1.0
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Healthcare and the Economy
• Healthcare is clearly an important contributor to the economic system in New Hampshire.
• This does not ‘eliminate’ the need to bring focused attention to growth in health care• Opportunity Cost (are these really
the jobs we want?)• Question of value still remains
primary
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This presentation is available for downloading on our website:
www.nhpolicy.org